Sunday, December 10, 2017

CBOE starts Bitcoin futures at 2300 GMT.

The Bitcoin market goes mainstream on Sunday with the launch of the first Bitcoin futures contract.

Here are five things you need to know:

#1 - When it starts

The CBOE launches it on Sunday at 5 pm Chicago time (2300 GMT). The CME product will start trading a week later. Both markets will be closed on the weekend, which creates a risk of massive gaps with Bitcoin often moving more than 20% in a day.

#2 - The contract size

Each CBOE contract is for one Bitcoin. That differs from the CME where it's 5 Bitcoin. The smaller CBOE contract size is attractive for smaller investors. The minimum movements are 0.01 points, which is equal to $10.

#3 - Market orders are banned

This is good and bad. It's bad because you can't just hit the 'sell' button and get out. It's good because you don't have to worry about slippage and that will minimize some of complaints, scaling and surprises. Another caveat is that all orders must be 'exposed' for 5 seconds, which is an effort to curb spoofing.

#4 - It's cash settled

No Bitcoin will change hand at the CBOE. It's a cash-settled market which means the buyer and seller essentially are on the hook for the difference between the sale price and the cash price.

#5 - Price discovery

This is the big one. The CME is using a price index of various exchanges for its pricing and settlement. For settlement at the CBOE, it will be based on auction price for Bitcoin at the 4 pm ET auction at the Gemini Exchange on settlement day. If that fails, there are contingencies, with the primary one being the Winklevoss Blended Bitcoin Index.

#6 - Trading halts

This could be a major factor if any trouble hits. Futures will be halted for 2 minutes on any move of 20% or more. They will be halted for 5 minutes if price moves exceed 20%. This is a major and perhaps killer advantage of the CME product, which can't trade more than 20% outside the open

#7 - Margin

Initial margin will be 44% of the current daily settlement price and maintenance margin will be 40%; That's higher than the 35% at the CME.